• Professor Elam

    Drag Me to Hell is down 23% in popularity this week, well hat's the good news. And the movie, reading the review, does not live up to its name but that is besides the point. The current titles at any video store reflect just this sort of popular genre. In a recent presentation on socionomics, I noted that Public Enemy was a hit in 1930 and that Johnny Depp had just made Public Enemies. All 56 copies of Depp's film were checked out at my neighborhood store. 

    But the truth is that the move back up in markets has lifted spirits enough to sell those JPM warrants in the previous post. So we have the mood improved but still rather dark, expect the dark tone to dominate in 2010.

  • Professor Elam

    THE TREASURY COULD NET $1 billion to $1.2 billion from the sale today of warrants on shares of JPMorgan Chase (ticker: JPM) that it received as part of the government's TARP investment in the New York bank, derivative traders tell Barron's.

    The 88.4 million warrants, which carry a strike price of $42.42 and a maturity date in nine years on Oct. 29, 2018, could fetch about $11 to $14 per warrant depending on the assumptions that investors plug into their Black/Scholes option pricing models.

    As a matter of fact the warrants fetched $10.75 each for a total of $936.1 Million.  I included the above quote as it mentions the expiration date, ten years it the future, good thing I would say. 

    Picture 5 

    Our experience is that selling warrants is usually a sign of a distressed seller, for once though the US Government may have caught the top of a market. Even the monthly chart reveals the highest price ever at DOW 14,000 when markets were giddy for banks was $50 for JPM. Option students will recognize that the $10.75 premium on a strike price of $42.42 means the stock has to rise to , ahem, a never before seen $53.17. Notably J P Morgan declined to purchase these warrants.  The 88 M warrants will trade in the market like any option as a proxy for the future of the stock price. 

    But the weekly chart shows JPM turning down, not up. Indeed all the banks have weakened with the XLF weaker and CITI dropping below $4. Volume has been smaller at bottom. It is a real sociomomic feat for the fears of last fall to turn to delight. Are investors saliv;ating over the  prospect of buying options on a business in the most troubled sector of America at a never before seen price?  Apparently so….
     

  • Professor Elam

    A  Rolling Stone article takes a look at the more cozy than you would imagine deals already cut to keep zombie banks alive. Warning, extensive use of graphic language, you may find yourself using same as you read the article. Also a good look at how derivatives came to be front and center. 

  • Professor Elam

    Yield Curve 

    Friday Dec 11 2009

    The 30 year T Bond auction did not go well this week, buyers are now under water no their purchases as the price of the bonds has declined as rates have risen. Buyers are demanding more and more yield to stomach the huge supply coming to market. Granted the late 2008 low was an extreme, the 30 yr scae is at left. We are now up some 200 basis  points since then, and this while the FED maintains we have low rates. Indeed what will happen when rates really start raising. The spread on bonds versus bills is the widest since the early 1980s. This typically forecasts inflation expectations.   Bernake is at a loggerhead, raise rates the govt and variable rate mortgages all pay more. But the market is raising rates for Ben, he does not have to.

  • Professor Elam

    I have posted some or part of Ralph Waldo Emerson's famous essay on gifts the last several Christmas seasons. He wrote these essays from 18330-32. Note the relevance of the first two sentences. Gee nothing has changed.

    "Gifts"
    By Ralph Waldo Emerson.

    IT is said that the world is in a state of bankruptcy, that the world owes the world more than the world can pay, and ought to go into chancery, and be sold. I do not think this general insolvency, which involves in some sort all the population, to be the reason of the difficulty experienced at Christmas and New Year, and other times, in bestowing gifts; since it is always so pleasant to be generous, though very vexatious to pay debts. But the impediment lies in the choosing. If, at any time, it comes into my head that a present is due from me to somebody, I am puzzled what to give, until the opportunity is gone. Flowers and fruits are always fit presents; flowers, because they are a proud assertion that a ray of beauty outvalues all the utilities of the world. These gay natures contrast with the somewhat stern countenance of ordinary nature: they are like music heard out of a workhouse. Nature does not cocker us: we are children, not pets: she is not fond: everything is dealt to us without fear or favour, after severe universal laws. Yet these delicate flowers look like the frolic and interference of love and beauty. Men use to tell us that we love flattery, even though we are not deceived by it, because it shows that we are of importance enough to be courted. Something like that pleasure the flowers give us: what ant I to whom these sweet hints are addressed? Fruits are acceptable gifts because they are the flower of commodities, and admit of fantastic values being attached to them. If a man should send to me to come a hundred miles to visit him, and should set before me a basket of fine summer fruit, I should think there was some proportion between the labour and the reward.

    For common gifts, necessity makes pertinences and beauty every day, and one is glad when an imperative leaves him no option, since if the man at the door have no shoes, you have not to consider whether you could procure him a paint-box. And as it is always pleasing to see a man eat bread, or drink water, in the house or out of doors, so it is always a great satisfaction to supply these first wants. Necessity does everything well. In our condition of universal dependence, it seems heroic to let the petitioner be the judge of his necessity, and to give all that is asked, though at great inconvenience. If it be a fantastic desire, it is better to leave to others the office of punishing him. I can think of many parts I should prefer playing to that of the Furies. Next to things of necessity, the rule for a gift which one of my friends prescribed is, that we might convey to some person that which properly, belonged to his character, and was easily associated with him in thought. But our tokens of compliment and love are for the most part barbarous. Rings and other jewels are not gifts, but apologies for gifts. The only gift is a portion of thyself. Thou must bleed for me. Therefore the poet brings his poem; the shepherd, his lamb; the farmer, corn; the miner, a gem; the sailor, coral and shells; the painter, his picture; the girl, a handkerchief of her own sewing. This is right and pleasing, for it restores society in so far to the primary basis, when a man's biography is conveyed in his gift, and every man's wealth is an index of his merit. But it is a cold, lifeless business when you go to the shops to buy me something, which does not represent your life and talent, but a goldsmith's. This is fib for kings, and rich men who represent kings, and a false state of property, to make presents of gold and silver stuffs, as a kind of symbolical sin-offering, or payment of black mail.

  • Professor Elam

    Here is an interview with Mish who does a fine Economic Blog. 

    You will be graduating into a world with  fewer opportunities. Those who slacked through college, not really learning any new skills, doing the minimum, with little to show intellecturally or in the realm of certifications will wonder where their tuition went in a couple of years. Remember you read it here first. 

  • Professor Elam

    Picture 3

    Many are noting that the Dow is trading where it was ten years ago, let's take a look. BAck then the Dow topped in December 1999, just as it has ten years later. It then made a series of lower highs styaing in a trend channel for a year and nine months. THere were three breakdowns and about three highs. It is clear in retrospect that this was a giant distribution pattern, the early buyers selling to the late comers.

    Picture 4 

    Just as a reminder, the ending was not pretty, note this chart adds a year,  and was repeated again last year. Note the last hurrah in early 2002 at, right where we are now, 10,500. Does lightning strike twice?

  • Professor Elam

    Conventional wisdom has it that things happen slowly we will all have a chance to react and regroup and like the hero in the movie, find out way out of a desperate situation. This however is simply not the case. Events tend to waterfall with a life of their own. Things happen slowly to a point and then

    Dubai cannot make a debt payment

    The future of the State of Nevada hinges on City Center

    Greece downgraded to bare investment grade, which of course means it is not, other Balkan countries not far behind

    No way for the EU countries to really rescue Greece

    By the way, if BRIC is Brazil Russia India China, do you know PIGS?

    Portugal, Italy, Greece, Spain, except of course this is not a favorable acronym. Spain has 20% unemployment and is not showing signs of recovery

    Lehman was certain of a govt bailout days before their collapse.

    Tiger Woods, well, the wife has already moved out

    I remarked that my initial post on Tiger was serious, and he is now in serious career trouble. Not going broke trouble, but positions as a public image for Nike and Accenture or anyone else in the forseeable future are probably out the window. Scandal sheet magazines and gossip columns are nothing new but long lenses and sites like tmz.com and radaronline.com as well as facebook give a new meaning to conduct unbecoming.

    Bear markets are famous for this Kobe Bryant did the same thing, but the markets had not crashed, twice. A change in sentiment leaves the public much less tolerant of mis behavior, it is a socionomic principle. Once the mood shifts from upbeat ot downbeat, beware.

  • Professor Elam

    Idols really do have clay feet. If you are wondering where Paulson got the request ofr $700M, well they made it up as it now comes to light. Do not assume that leaders, just because someone gave them the title know what they are doing. As Indiana Jones famously remarked, I dunno I am making this up as I go along.

    In February 2008, Mr Kashkari was charged with drafting an emergency plan in case the credit crunch became a full-blown financial crisis. By October the crisis had arrived and his ten-page plan became the blueprint for the banks' bailout that Mr Paulson presented to Congress.

    Mr Kashkari admitted that he plucked “a number out of the air” when deciding with Mr Paulson how much funding to request from Congress for the Tarp.

    He told The Washington Post that he used his BlackBerry to calculate the bailout figures: “We have $11 trillion residential mortgages, $3 trillion commercial mortgages. Total $14 trillion. Five per cent of that is $700 billion. A nice round number.”

    Recalling a conversation with Mr Paulson, he said: “It was a political calculus. I said, ‘We don't know how much is enough. We need as much as we can get . What about a trillion?' 'No way,' Hank shook his head. I said, 'Okay, what about 700 billion?' We didn't know if it would work. We had to project confidence, hold up the world. We couldn't admit how scared we were, or how uncertain.” The American Bailout Nightmare – Times London

  • Professor Elam

    Texas, along with other states, is hiking the minimum unemployment tax on employers.

    This of course is a disincentive to hire any more workers.

    The better idea for unemployment is that every week the check should decrease, then the recipient would realize this is a temporary measure and they should seriously be looking for work, rather than laying around on their new job, collecting unemployment. Then people would move if necessary to where they could find a job. Then communities would be forced to do what it takes to attract a business. As it is, communities are just asking for more 'stimulus' money which results in more unemployment payments which hikes taxes which are a disincentive to hire, this will only increase unemployment. 

    Note to students, if you are thinking a college degree is simply going to land you a job, think again.

    Now more than ever it will be important to have a defined skill set to offer. And presentation skills will be necessary to convince someone of your intrinsic worth.